Is This Another 2008? Here’s the Surprising Answer

By Michael Foster

ItaEURtms a statement we hear from readers a lot: aEURoeIaEURtmm worried about another 2008.aEUR

I get it. After all, weaEURtmre all 11 years older and have that much less time to recover from a crash. So today weaEURtmre going to cut through the noise and look at whether there really is something to worry about here.

WeaEURtmll do it by comparing, point for point, whataEURtms happening now to the run-up to the 2008 crash. I think youaEURtmll be surprised by the results.

LetaEURtms dive in.

This Happened in 2006aEUR"and Again Last March

We started hearing about the inverted yield curveaEUR"when yields on short-term Treasuries move higher than those on longer-term onesaEUR"seven months ago. ItaEURtms a reliable early warning, typically cropping up a year to two before a recession starts.

Case in point: the last time the yield curve inverted, in August 2006. We know what happened to stocks after that:

Early Warnings Ring True

The dark-gray side of the chart indicates when the recession officially began, 14 months after the warning sign first came.

Overlaying that timeline with the present day, weaEURtmd have seven more months until the recession starts, and stocks would be at the top. I say that because, in those same seven months after the start of the inverted yield curve in 2006, stocks kept going up.

Investors Ignored the Warning Signs in aEUR~06/aEURtm07 aEUR

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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